With everyone's attention focused squarely on Ireland and whether or not the country would be finally put out of its misery, one thing that most missed is that after today's release of subpar economic data, Europe has now entered a double dip. While this is not news to Zero Hedge readers, as we were confident this would happen when the EURUSD passed 1.30 for the first time several months ago, it may take others by surprise. Unfortunately Europe's troubles are only going to get worse. The only way to stimulate organic growth now, read create another export-led bounce, requires the devaluation of the euro. However, that would mean that the ECB would have to not only launch a comparable program to QE, which would paradoxically anger an inflation-weary Germany (whose economy would benefit the most from an export boom) but far more importantly, anger the New York Fed. And this Europe can not afford - keep in mind that in Europe's rickety financial structure in which a whole lot of countries are kept on life support, the ECB is only the second to last (and far less reliable) provider of resuscitation services. The last one is the New York Fed, which courtesy of its FX swap lines, now has infinite leverage over what happens in Europe. Should there be another crisis, and there will be, the Fed's generosity will be tested again. As will the IMF... to whose various credit lines America just happens to be the biggest sole contributor. There is a word for this type of arrangement: total leverage.

In exchange for all these assorted mechanisms that allow Europe to continue its failed EUR experiment, the Fed now is the ultimate dictator of European monetary policy. Therefore in the global race to the bottom, Europe is now guaranteed not to finish first as the Fed's tentacles have made sure that the quid pro quo arrangement is all too clear. Which simply means that the material drop in GDP will accelerate, as Europe finds itself with its monetary options cut off, even as America reaps the benefits of a weak dollar (if not vis-a-vis China, then certainly with regard to Europe).

Markit Economic Research summarizes today's barrage of very unpleasant European data best:

The Eurozone economic recovery lost momentum in Q3, as expected and in line with the earlier message from the PMI surveys. Gross domestic product rose 0.4% in the three months to September compared with a 1.0% rise in Q2. Further weakness looks likely in coming months, especially as domestic demand looks set to remain lacklustre in the face of financial market, international trade and political tensions.

Not just a payback from Q2 rebound

The 1.0% surging growth pace seen in the second quarter was clearly unsustainable for long, and was attributable to special factors, such as a rebound from bad-weather related disruption in Q1. However, it would be unwise to dismiss the Q3 slowdown as merely a normalisation or payback from the growth spurt earlier in the year. PMI data suggest that growth momentum continued to be lost at the start of the fourth quarter, taking the GDP quarterly growth rate down to 0.3%. (The Composite Output PMI covering manufacturing and services averaged 55.7 in Q3 but slipped to an eight-month low of 53.8 in October). With media headlines highlighting growing trade tensions, and the euro area's periphery back in crisis mode, the chances of growth slipping further in coming months are very high.

Uneven recovery

The region's recovery is also looking increasingly uneven. Back-slapping in Germany as GDP growth came in at an impressive 0.7% is going to sit very uncomfortably with the unexpected weakness seen in other countries, especially the contraction seen in the Netherlands and stagnation in Spain. With ECB rhetoric focusing on the removal of ultra loose policy at a time when peripheral economies are stalling or contracting, policy tensions are likely to add to the uncertainty and unrest in the region and darken the outlook.

Surprise fall in industry

While GDP growth was in line with expectations, euro area industrial production disappointed by a wide margin. Production fell 0.9% in September against expectations of a 0.3% rise.

The monthly data tend to be volatile, and the decline most likely overstates the extent to which the industrial sector weakened at the end of the third quarter. These data nonetheless add to the growing body of evidence which suggests that the industrial sector is expanding at a much weaker pace than earlier in the year. Looking at growth over the most recent three months, the rate of expansion has slowed to just 0.8%, down from a peak of 2.9% in the three months to May.

This is a major disappointment given that industry has been a key driver of growth earlier this year and raises questions about the resilience of the recovery. The fact that durable consumer goods showed the greatest decline (a 3% fall during the month) highlights the persistent weakness of domestic demand in the region as a whole, as households worry about austerity measures, job security and the growing financial crisis, which is going to remain an important drag on economic growth going forward.

So let's summarize this week's developments: China is overheating and will hike rates soon in an attempt to neutralize the madman's liquidity tsunami, Europe's sovereign crisis will soon take its next two casualties even as the continent no longer can rely on even pipe dreams of EURUSD parity, and most importantly, the self-fulfilling prophecy of POMO updays is now over....

One wonders what the InTrade odds of the GM IPO being pulled at this point are.

There is nothing new to these FX lines. They were used heavily in late 08 as part of the pre-official QE swelling of the Fed's balance sheet. Then they were repaid (Fed probably made a nice return on that transaction).

The swap lines were re-opened this past May, but there has been conspicuously low (if any) draw on these lines.

Merkel took all of Europe down the austerity path and that saved/rallied the Euro temporarily without the use of the FX line. Now that austerity is playing out Irving Fisher style, real debt burdens for the periphery Euro nations increase, and their sovereign debt has fallen outside the safety zone of the better credits (gold, USTs, bunds, etc) creating blowouts in spreads. PIGS default is a certainty; always was.

So far it looks like Bernanke's QE is preferable to Trichet/Merkel/Weber austerity cum debt serfdom. But boy, there has got to be a better option still.

I strongly suspect TPTB in Europe want to avoid drawing on the FX lines at all costs, but will need to lean heavily on the swaps in the end. Or maybe the ECB is being set-up as the ultimate "bad bank"? Who knows? The French and German banks have already effectively offloaded a significant amount of PIGS sovereign debt on the ECB. Maybe they could start swapping more PIGS debt for USD at the ECB. The swap line could be a "don't throw me into that briar patch" sorta thing.

No doubt extreme pressure/leverage is being applied by multiple parties, and everyone is jockeying, positioning, negotiating the quid pro quo, etc.

QE is preferable to austerity. The banks don't deserve interest on the money supply.

Notice the article and all like it, tho...always the talk of growth growth growth, what can we do to get growth back.

Until we abandon this talk of growing forever and ever and ever, we're not going to come up with any real solutions.

The debts CANNOT be paid; we are in a contractionary climate. Principal at this point is dicey, forget interest.

There ARE NO OPTIONS in which NOBODY has to take a haircut. The battle is between the oligarchy who have all the bond claim tickets and want austerity or in the absence, will continue to borrow to stockpile liquidation claim tickets, and the rest of us, who need jubilee and to be relieved from this parasitic banking system.

What kills me is this action, in broad strokes is just too predictable. I wonder what the IMF's swap line at the fed is? Regardless, this game is all too familiar to us folks who survive here off South Main Street

And helps provide further clarity as to why we still have so many uniformed service members in Europe. While Europe has grown reliant upon US largess to save them the hassle of footing the bill for their own defense (what looked like uneven burden sharing in Afghanistan gains in clarity). Now Europe's military and para-military (police and others) forces are woefully unprepared without our assistance. I wonder what the reaction on the streets of Europe would be if their governments felt compelled to call on the US to provide forces to help maintain order?

Europe is in Afghanistan as a gesture of solidarity, US gov knows they could fight that pathetic and pointless war on their own, the whole thing is a very bad and tasteless joke. As for US forces maintaining order in Europe, that’s very funny indeed.

If you can figure out a way to destroy all the other reserve currencies, or pseudo reserve currencies, or wanna-be reserve currencies, then the relative reservy-ness of your currency can increase greatly. And what is the big worry about a large increase in money supply if global trade and forex reserves must rely all the more on your currency?

Of course, there is that pesky problem with gold. What to do about gold...

Might be a good idea to use your military to firmly control a good chunk of the world's energy supplies as a hedge.

Europe at that time was selling everything they had priced in USD so that they could buy Treasuries. The 4X swap as designed to stop the overwhelmong selling of US equities and to stabilise the GBP (which was ruined...).

Now, the opposite is true. Now, it is designed to get people out of equities and into US bonds. Demand will be much stronger than you think. That move helps the Euro and the AUD come to a softer landing vis-a-vis the USD.

Give it time, the pain is nowhere near sinking in yet because it hasn’t really started. 99% of people are still in la la land, and a vast majority have never known austerity. UK gov just released details of benefit cuts for the poorest claimants(including the disabled), and there has been a huge media drive to turn the rest of the nation against the "work-shy",(everyone seems to have forgiven the bankers for the moment) and the rest of the nation is buying it. The only thing is, when the rest of the nation realise that they too will soon be needing these benefits when the public sector cuts kick in, things will get ugly. They want people with no job to work for £1 an hour...when you start demanding that accountants, nurses, electricians etc work for £1 an hour(sweeping streets and cleaning etc), then you will see fireworks, IMO. And rightly so!

UK is an interesting study to watch...that is the oldest and firmest-entrenched oligarchy and banking clan. The message is GET BACK ON YOUR WHEELS, HAMSTERS from them. And the average Brit is so goddamned mindfucked and so prideless and cowardly now that they are just going to soldier on and take it.

They do now since their exports to the U.S. have flat lined. In my opinion the Chinese government is getting what it deserves trying to keep up with the Fed's poor money laundering skills. It should be no "surprise" that industry dropped off since Europe's net imports from China are on the rise.

"I just didn't have enough time, "money" and power to prove that Keynesian economics work. Damn you world for stifling my creative genius. Damn you death for taking me at such an inopportune time! And damn you Ron Paul...." - Ben Bernanke's Epitaph.

In opposition, will read:

"See I was right all along Gold equates to Economic Freedom! And damn you Ron Paul....." - Alan Greenspan's Epitaph

My guess is the GM IPO will go on as planned. Monday markets will be surging in the pre market with the FED out front running the hell out of the Futures. After the IPO and subsequent sell off in GM stock its anyones guess how low we will go. Face it Bernanke is at some point either going to be cornered and stopped by grown ups or he is going to take the system down on his own. Either way longer term the market is going lower.

After the Treaty of Versailles Keynes's main interest had been in trying to prevent Germany's compensation payments being set so high it would traumatise innocent German people, damage the nation's ability to pay and sharply limit her ability to buy exports from other countries — thus hurting not just Germany's own economy but that of the wider world.

Keynes outlined the causes of high inflation and economic stagnation in post-WWI Europe in

The Economic Consequences of the Peace.

"Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.

There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

Keynes also pointed out the relationship between governments printing money and inflation.

"The inflation-ism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required,have printed notes for the balance."

During World War II, Keynes argued in How to Pay for the War, published in 1940, that the war effort should be largely financed by higher taxation and especially by compulsory saving essentially workers loaning money to the government, rather than deficit spending ,in order to avoid Inflation....

and "that's where Keynes phucked up" to be blunt. In the USA "we monetized the debt to finance the war." It is probably the most brilliant and as such never really written about acts of finance in the history of "war financing." hard to imagine "all that worthless debt" producing a war machine the likes the world has never seen. "needless to say our Great Depression was long gone and forgotten" long before our boys ever came home. Britain had their "finest hour" in 1940--but ours was well on it's way by then, too. As it relates to this article I firmly believe "a European double dip is not in our interest." That includes more than our economic interest. These are ominous clouds approaching.

Maybe not, there is good reason to let the markets tank a bit - the dissenting voices against Uncle sugar's QE at the G20 is unusually loud, non? So tanking the markets is a way for the Fed to stick the finger at the opposition to QE. Btw, who did you think originated the rumour about China rate hikes? - hint: its a sea creature:)

Also notice how everything seems orderly and respecting the "trendlines". So expect the unexpended bullets from the coming days' and weeks' POMO to accumulate, ready to be put to good use (aka SPY 1300) when the dissent has been scared into submission. If within a week these voices are still heard, let them have the full monty flash crash.

However, that would mean that the ECB would have to not only launch a comparable program to QE, which would paradoxically anger an inflation-weary Germany (whose economy would benefit the most from an export boom)

Germany exports are going up despite the rise of the eurusd. This theory that by just debasing the currency you are going to export more is too simplistic. There are other factors that come to play.

the graphical analytics demonstrate the inevitability--but not the timing--of the subsequent bust.

Get rid of the Keynesian Demand Constraint.

It is a badly written book, poorly organized; any layman who beguiled by the author's previous reputation, bought the book was cheated of his five shillings. It is not well suited for classroom use. It is arrogant, bad tempered, polemical and not overly generous in its acknowledgements. It abounds in mares' nests and confusions... In short, it is a work of genius.

Because The General Theory is such a poorly written book, "there is," according to Axel Leijonhufvud (1968: 35), "room...for differing interpretations of Keynes." Indeed, Leijonhufvud argues that if his interpretation is not what Keynes meant to say, it's "...what he should have said." Samuelson (1964: 316) writes that "there is reason to believe that Keynes himself did not truly understand his own analysis."

So let's summarize this week's developments: China is overheating and will hike rates soon in an attempt to neutralize the madman's liquidity tsunami, Europe's sovereign crisis will soon take its next two casualties even as the continent no longer can rely on even pipe dreams of EURUSD parity, and most importantly, the self-fulfilling prophecy of POMO updays is now over....

Ben is rather good at math but needs better tutor's to his staff...

What asset class survived during the collapse I asked. It was conveyed bread and beer stocks my dear boy since those who had a job enjoyed the simple things. It was very true how little I knew of reality in Detriot during the good times as women worked the gardens and minded the children since many still had a place to go to called family... My wife today is organizing city gardens for next year and some people will understand why...

We can now tell the Foreign nations to paddle their own canoes at last and to take full responsibility for their own actions. American's are not run by Americans are they? The basis of all trade is benefit to both parties. There is no need for the traders to like each other for each to gain by the trade. There is no reason, therefore, why the Communists, even if in charge of most of the world, would not be willing to trade with us, just as they are willing and eager to trade now.

Europe's financing will come from China, the Middle East, India, wherever you have people with wealth that want to protect it and are already overweight gold. And the EUR/USD will also go down. You'll have blowups and haircuts plenty, but Europe will be able to finance herself much easier than the U.S. The writing is on the wall. It has been for some time. It's the U.S. that's going down the tubes . . . unless there are some very big policy changes in the very immediate future.